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Accumulation/Distribution Index

accumulation distribution index

Accumulation/Distribution Index (ADI)

A cumulative total volume analysis indicator

Marc Chaikin created the ADI as a cumulative total volume technical analysis indicator. The ADI adds or subtracts each day’s volume in proportion to where the close is between the day’s high and low.

The first step is to form a close location value,
CLV = [ (close – low) – (high – close) / high – low ]

This ranges from -1 when the close is the low of the day, to +1 when it’s the high. For instance if the close is 3/4 the way up the range then CLV is +0.5. The accumulation/distribution index adds up volume multiplied by the CLV factor, ie.
accdist = accdistprev + volume * CLV

The starting point for the acc/dist total, like the zero point, is arbitrary. Only the shape of the resulting indicator is used here, not the actual level of the total. The name accumulation/ distribution comes from the idea that during accumulation the purchasers are in control and the price will go up through the day, or will make a recovery if sold down. In either case, the price closes near the day’s high than low. During distribution, the opposite happens.

Notes:

  1. The ADI is similar to On Balance Volume (OBV), but ADI is based on the close within the day’s range, while the OBV uses the close-to-close up or down
  2. We form a Chaikin oscillator by subtracting a 10-day exponential moving average (EMA) from a 3-day EMA of the ADI
  3. Since the Chaikin oscillator is an indicator of an indicator, it can give many sell or buy signals, depending on the context and depending on the other indicators.
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Advance Decline Line

advance decline line

Advance Decline Line (ADL)

The Advance Decline Line measures the number of individual stocks participating in a market rise or fall

Definition

The ADL is a stock market indicator used by speculators to measure the number of individual stocks participating in a market rise or fall. Price changes of large stocks can have a disproportionate effect on capitalization weighted stock market indices such as those of NYSE and NASDAQ. It would be good to know how broadly this movement extends into the larger market of smaller stocks.

Formula

In a particular stock market index the ADL is a plot of the cumulative sum of the daily difference between the number of issues advancing and the number of issues declining. So it moves up when the index has more advancing than declining issues, and vice versa. The formula for ADL is:
A/D Line = (# of Advancing Stocks – # of Declining Stocks) + Yesterday’s A/D Line Value

Notes:

  1. Divergence happens when the stock market index moves in one direction while the ADL moves in the opposite
  2. In such a case, if the index goes up while the ADL goes down, the index might mislead us about the true direction of the market overall.